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Analyst Dániel Cséfalvay: "Hungary will not be altering its energy supplies"


  • Hungary is overly reliant on Russian oil and gas supplies, yet significant phasing out is unlikely in the short to mid-term future.

  • The political steps of the government cemented the Hungarian energy policy and supply routes for the coming years.

  • While alternatives are discussed, the current government will continue to rely primarily on the existing supply routes.


Energy: present and future

The most straightforward answer that can potentially cut the reading time significantly, is that no, Hungary will not considerably change its energy policy or supplies in the short to mid-term. The main reasons for this prediction stem from the country's geographical location and over-reliance on oil and gas imports. However, a deeper dive into the specifics reveals important signals for the future.


As a landlocked country, Hungary relies overwhelmingly on its oil and gas deliveries through pipelines. The estimates state that the Russian import comprises between 80-85% of all the country’s natural gas imports, while the crude oil supply is at 65%. This leaves Hungary widely exposed to supplies from Russia while creating additional challenges for diversifying its supply routes. The Minister of Foreign Affairs Péter Szíjjártó often highlights that given the current situation, Hungary is subject to “physics and physical reality” which does not allow to significantly phase out the Russian supplies.


While other EU members, such as Poland or the Baltic countries, look for alternatives through LNG ports, this is not an alternative Hungary can explore given its geographic location. Szijjártó also added that if there were alternatives to the current supply routes, Hungary could adjust the import sources, however, this has not been the case. Hence, considering the physical aspect of Hungary’s supply routes and possibilities to divert or access new supplies, it is likely that Hungary will not be able to significantly reduce its dependence on Russia to the extent that the coastal EU states are able to. However, this raises the question of the political will of the Hungarian government to diversify and find alternative delivery routes.


Phasing out the Russian supplies?

Even though Szijjártó openly talked about diversifying the sources of Hungary’s oil and gas imports, the steps taken in the past months have cemented Hungary’s import sources for the foreseeable future. On April 11, Szijjártó travelled to Moscow to discuss the future of Russian oil and gas imports to Hungary. During this visit, Szíjjártó met with Deputy Prime Minister Alexander Novak and the CEO of Rosatom Alexey Likhachev. When asked, Szijjártó highlighted that no new agreements were signed and already existing ones were extended.


Crucially, Hungary got assurances that the Russian supplies will be delivered undisturbed in the upcoming year, and in addition to that, the deliveries can exceed the originally contractually agreed amounts. While the “physical reality” makes it difficult to abruptly change the current supply routes, the government’s political direction and focus hints at the fact that diversifying and acutely investing in alternatives is currently not being considered in the short term.


What would be the alternative?

At the 2023 Budapest LNG Conference, Szijjártó spoke about alternatives and acknowledged that in terms of gas supplies, there are options available through Croatia and Poland. However, both of these currently lack the necessary infrastructure to deliver significantly increased amounts to Hungary. Another alternative that was mentioned by Szijjártó as a possible source were the gas deliveries from Azerbaijan through Turkey and Croatia, which could materialise in late 2023. To this, he added that Hungary in cooperation with Romania, Bulgaria, Greece, and Turkey tried to secure funding from the European Commission to develop the infrastructure for gas deliveries from Azerbaijan.


However, according to Szijjártó, as of now there has not been too much attention put to this case from the EU Commission’s side. Crucially, a solution that might materialise more significantly in the future is a partial replacement of the deliveries through increased domestic supplies. The government announced the gradual exploration and field development at a non-traditional natural gas field in Nyékpuszta, a potentially significant investment with no exact approximation of the quantities that it could deliver yet. However, while alternatives do exist, the political steps to ensuring further deliveries from Russia highlight the direction of the government's energy policy in the short to mid-term future.


Outlook

Even though the current trend in Europe is focusing on alternative gas and oil supply routes and phasing out the Russian supplies due to the invasion of Ukraine, the Hungarian government deviates from this. While the arguments are focusing on the “physical reality” of the current supply routes, the steps taken to diversify the supplies and ensure the continuous flow of Russian gas and oil mean that the current “physical reality” is unlikely to change in the coming years.


While alternatives are being discussed, the political capital goes into reinforcing the existing supply routes. Szijjártó also added that even if the current supply routes were effectively diversified through Poland and Croatia, Hungary would not abandon “trustworthy suppliers”. Hence, while one aspect is the existing infrastructure and supply routes that limit diversification, a significant factor also lies in the government’s steps that cemented Hungary’s energy supplies from Russia for the coming years. Based on these, the likelihood of the current Hungarian government significantly changing its energy policy is extremely low.


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